Much like how your personal credit report reflects your individual financial behavior, a business credit report offers a comprehensive view of your company’s financial standing and creditworthiness. This report can significantly influence your ability to secure loans, obtain favorable terms from suppliers, and attract potential business partners. Therefore, understanding what a business credit report entails and how to read it arevital for maintaining and enhancing your company's financial health.
What is a Business Credit Report?
A business credit report is similar to a personal credit report but specifically tailored for businesses. It serves as a snapshot of your company’s creditworthiness, summarizing its financial history and how responsibly its credit obligations are managed.
Checking Your Business Credit Report
To access and review your business credit report:
1. Have Your Federal Tax ID Number or EIN Ready
Your business’s unique identifier, also known as the Employer Identification Number (EIN), is issued by the IRS and is crucial for accessing and verifying your business credit report. It acts as a social security number for your business, allowing credit bureaus to compile and present accurate credit information.
Make sure you have this number on hand as you will need it to authenticate your business identity when requesting your report.
2. Use the Major Credit Bureaus
There are three major credit bureaus that report business credit scores—Dun & Bradstreet, Experian, and Equifax. Each bureau might have a slightly different process for requesting a business credit report, so check each bureau’s website to learn how to request your report. Create an account if you haven’t already, as this will facilitate easier access to your report in the future. Be prepared to provide additional business information and possibly pay a fee, depending on the bureau’s policies.
- Dun & Bradstreet (D&B): Visit the D&B website and search for your business using your EIN. D&B is well-known for its D-U-N-S Number, a unique identifier for businesses. You may need to register for a D-U-N-S Number if your business doesn't already have one.
- Experian: Access Experian's business credit services by providing your business details and EIN. Experian offers various business credit reports, so choose the one that best suits your needs.
- Equifax: On the Equifax website, you can search for your business using your EIN and other identifying information. Equifax offers comprehensive business credit reports that include credit scores and detailed financial data.
3. Review the Business Credit Report
Once you have accessed your business credit report, scrutinize the various sections to get a complete picture of your company’s financial health. Each credit bureau organizes its reports slightly differently, but the key components remain consistent.
How to Read Your Credit Report
Interpreting your business credit report involves understanding key sections:
Business Profile
This section provides basic information about your company, including:
- Name
- Address
- Business Type
- Subsidiaries
- Contact Details
Verify that all this information is accurate and up to date, as any discrepancies can affect your credibility. The business profile sets the stage for the rest of the report, giving potential creditors and partners a clear overview of your company’s identity and operational scope.
Business Credit Score
Your business credit score is a numerical representation of your company’s creditworthiness. Scores typically range from 0 to 100, with higher scores indicating lower credit risk. This score is derived from various factors, including:
- Payment History
- Credit Utilization
- Length of Credit History
Understanding your credit score helps you gauge how lenders and suppliers view your business. A high score can lead to better credit terms, while a low score might signal a need to improve your credit practices.
Payment History
The payment history section is crucial as it shows how reliably your business pays its bills. It includes detailed records of payments made to creditors and suppliers, highlighting whether payments were made on time, late, or missed altogether. Consistent timely payments reflect positively on your business and can improve your credit score.
On the other hand, late or missed payments can significantly harm your credit standing.
Credit Inquiries
Credit inquiries record the entities that have requested to view your business credit report. These inquiries are classified into two types — hard inquiries and soft inquiries.
Hard inquiries are made by lenders when you apply for credit and can slightly affect your credit score. Soft inquiries, such as those made by you or potential partners conducting due diligence, do not impact your score. Regularly review this section to monitor who is viewing your credit report and ensure there are no unauthorized inquiries.
Legal Filings
Any legal actions or filings against your company, such as bankruptcies, liens, or judgments, are documented in this section.
If you find any inaccuracies or outdated information here, address them promptly. Legal filings provide insight into any potential legal risks associated with your business, and maintaining a clean record is important for sustaining a positive credit profile.
Derogatory Information
This section highlights any negative marks on your credit report, such as overdue accounts or defaults. Regularly monitoring this section can help you catch and address problems before they escalate.
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Business Credit Report FAQs
How do I build business credit?
You can build business credit in different ways, such as utilizing a business credit card, getting business financing, and having merchants report your payments to credit bureaus. However, any financing needs to be paid off in full by the payment due date to have a positive impact on credit
Does my LLC have a business credit score?
Any business that has had information reported to a business credit bureau has a business credit score. If you are unsure whether your business has a credit score, you can check with one of the bureaus online.
How do I establish business credit for the first time?
To establish business credit, make sure your business is registered, that you have an EIN, and that you’ve opened a bank account through your business.
